The role of vietnam's private economyand the development of private economy in Ha Noi

129 HNUE JOURNAL OF SCIENCE Social Sciences, 2020, Volume 64, Issue 4D, pp. 129-137 This paper is available online at THE ROLE OF VIETNAM'S PRIVATE ECONOMYAND THE DEVELOPMENT OF PRIVATE ECONOMY IN HANOI Nguyen Thi Mai Faculty of Political Theory and Civic Education, Hanoi National University of Education Abstract. In Vietnam, the private economy is an important driver of the economy. It is a new content in the awareness of the Communist Party of Vietnam. The 5th Conference of the 12th Central Party Committee promulgated the Resolution No.10 - NQ/TW on “developing the private economy to become an important driving force of the socialist- oriented market economy”. This is a very important condition to strengthen and develop Vietnamese private economy in general and the private economy in Hanoi in particular. To clarify the role of the private economy in general and Hanoi’s private economy in particular, I discuss the following issues in this article: - Theoretically, I clarify the motivational role of private economy, persuading those who still discriminate against private economy to change their views and attitudes toward private economy. - In practical terms, I give valid evidence in developing private economy, creating a pervasive and replicable model on the national scale. - On that basis, a number of solutions for private economic development in Hanoi are proposed. Keywords: Private economy, Role of the private economy. 1. Introduction Currently, Vietnam is developing a market economy. In this economy, there are many forms of ownerships and economic sectors, including the private sector. However, private economy has not fully developed its inherent potential yet. There are many reasons, but one of the basic reasons is that many people have not realized and properly applied the Party's views on the motivational role of private economy. They have a misconception that private businesses operate for their own profits. From such awareness, they have posed barriers to private economy. Of course, the practice will guide them, private economy will overcome these barriers, and some localities have made great strides in awareness and innovation in private economic development. A typical example is Hanoi - one of the major economic centers of the country. There have been many foreign and Vietnamese studies discussing private economy. In the book Vietnam's private economy after two decades of reforming the situation and the problems raised (2005), the author Dinh Thi Thom [1] mentioned that: Vietnam's private sector after two decades of innovation, progress and problems; economic sectors in Vietnam, practical policies in the renovation period; forecast of and policies on the use of private capitalist economy Received April 11, 2020. Revised April 24, 2020. Accepted May 15, 2020. Contact Nguyen Thi Mai, e-mail address: holdme105@gmail.com Nguyen Thi Mai 130 in socialist orientation. The ministry-level scientific research project Some basic issues of private sector development as the basic drive force of the new economic growth model for the period of 2011- 2020 of Dr. Vu Hung Cuong, Vietnam Economic Institute, was implemented in 2009-2010 [2]. The research emphasizes the position and role of private sectors in Vietnam's economic growth and development in the 2001-2010 period; the status of development of private sectors in Vietnam in that period, and the viewpoints, orientations and proposals for the development of private sectors to become the basic driving force of the economic growth model in the period 2011-2020. The above studies have acknowledged that private sector provides a large volume of products for Vietnamese society. It is a dynamic economic area and is able to adapt to the characteristics of a market economy, with potential capacity in improving the endogenous capacity of the country, economic growth. However, there has not been any research on the role of private economy and the reality of private sector development in Hanoi, to see what opportunities and challenges Hanoi faces during the progress to develop private economy. 2. Content 2.1. Private economic concept Private economy is a form of economy based on private ownership of means of production. Private economy came out since the fall of the original communist public regime and the establishment of private ownership. Private economy includes non-capital private economy and capitalist private economy. The non-capitalist private economy has no employer and employee relations, including individual economy, smallholders, economy of farm households, and small business of traders. The capitalist private economy has employer and employee relations. Employees are paid by employers in various forms based on their production and business results. Enterprises are jointly owned by individuals (domestic or foreign) (shares) from the private sector. Joint-venture enterprises between the state and private sectors are not wholly private or state-owned. However, enterprises in which the state holds a dominant share may be classified as state-owned businesses, whereas enterprises with the state's dominant share may be classified as private sectors. Although Vietnamese economy today has many components, it can be divided into two components: private economy and state economy. Private economy in the form of development is the capitalist private economy. Small commodity producers have to compete with each other. That competition leads to the following situations: some of the businessmen obtain profits, expand their businesses, hire workers and become employers; some businessmen lose money, go bankrupt and become hired workers. If a business is profitable, a businessman will benefit; if a business is lost, a businessman suffers. Therefore, the purpose of private economic people is primarily for profit. However, it must be confirmed that private economic people are very interested in and actively strived for the highest profit. Therefore, private economy is often highly efficient [3]. Many people are not fully aware of the nature and role of private economy. In fact, all countries have a number of private enterprises that have a negative impact on society (illegal business, tax evasion, smuggling, fraud and other illegal acts). However, private economy is generally positive, contributing to the creation of material wealth, creating jobs for workers, and contributing to the economic development of the society naturally. It is not recommended to think that private economy is intrinsically harmful based on the fact that a few private enterprises cause negative impacts. This misconception is still a reason hindering the development of private economy. Therefore, in order to make private economy stronger with its The role of Vietnam’s private econony and the developt of private econony in Hanoi 131 potential, it is necessary to continue changing individuals’ thinking; and those who still discriminate against this sector need to change their attitude towards it. 2.2. The role of private sector During the Renovation period, the Communist Party of Vietnam (thereafter “the Party”) and the State have been aware of the position and the role of private economy in policies of developing a multi-sector economy. As a result, private economy is constantly growing, becoming one of the main factors contributing to the rapidly economic growth. After more than 30 years of renovation, Vietnamese private economy has not only been gradually restored but also has developed in both quantity and quality. The Resolution of the 10th Congress of the Party in 2006 affirmed that: private economy has an “important role, being one of the driving forces of the economy”. In the 12th Congress of the Party in 2016, private sectors were emphasized as “an important driver of the economy”. The Resolution of the 12th Congress of the Party in 2016 stated: “Completing mechanisms and policies is to facilitate the strong development of the private economy in almost all economic sectors and fields, to become an important driving force of the economy. Completing policies support the development of small and medium-sized businesses and start-ups. Encouraging the formation of multi-ownership private economic groups and private sector contributing capital to state-owned economic groups, the private sector is an important driving force of the economy” [4]. This is an important step forward in the Party's thinking and views on the role of private sector, means that only private sector can be active and adapt quickly to the fluctuations of the market economy. Especially, after the 10th Congress (in 2006), private economy was formally identified as an economic sector that was encouraged to develop without any limitation. Private economy has made great contributions to Vietnam's socio-economic development and international integration. The role of private economy is as follows: First, private economy is an important driver of a socialist-oriented market economy In production and business activities, with a goal of maximizing profits for private owners, private economy always contains a strong motivation to update technology, rationalize produced management, develop means of production. Since then, the growth of market economy is promoted. The Party's awareness of the position and role of private economy in a socialist-oriented market economy has been increasingly and clearly affirmed. The 10th Congress (2006) of the Party identified private economy as one of the driving forces of Vietnamese economy. The 5th Plenum of the 12th Plenum affirmed that: “private economy is an important driving force for economic development. State economy, collective economy and private economy are the key to develop an independent and autonomous economy. Encouraging and creating favorable conditions for private economy to develop rapidly, sustainably and diversely with a high growth rate in terms of quantity, scale, quality and proportion of contribution in total products” [5]. Changes in the Party's thinking about the role of private economy in a socialist-oriented market economy has boosted our country's private economy to develop strongly, bringing the private economy gradually into an important engine of the national economy. According to the General Statistics Office in 2016, the private sector accounted for more than 40% of the national GDP, 30% of the total industrial output value, nearly 80% of the total flows of retail goods and services, 64% of the total goods volume, employing about 51% of the country's labor force and creating about 1.2 million jobs for workers each year, making an important contribution to the process of economic restructuring, increasing citizen’ income. Nguyen Thi Mai 132 Secondly, private economy contributes to the liberation of productive power, mobilization and effective use of resources of economy. Resolution 10 of the 12th Plenum of the 5th Plenum affirmed that: “Developing a healthy market-driven private economy is an important means to mobilize and efficiently allocate development resources and liberalize production capacity” [6]. Indeed, private economy is an economic component with a variety of production and business organizations from small to large scale. It is suitable for the development of producing forces (from low to high in the sectors), of industries and various regions (plains, midlands, mountains, islands, rural, urban). Therefore, private economy has contributed to mobilizing all potentials of capital, land, labor, intellect, production experience, skill level of people of all strata throughout the regions, accelerating quickly increasing the number of private sectors and expanding the scale of production and business enterprises. Thirdly, private economy plays an important role in promoting economic growth in the direction of modernization, international integration and increasing budget revenues. Private economy has maintained a fairly high growth rate, attracting about 85% of labor force, making an important contribution in mobilizing social resources for investment in production and business development and economic growth. Economic growth rate maintained at 4.5% in the period 1986 – 1990, and increased to 6.32% in the period 2006 – 2010. In recent years, the rate has been maintained at high level, around 7%. Private economy has become an important factor of our country's economic growth, contributing 40% of the national GDP. Initially, a number of large-scale private economic groups have been established, operating multidisciplinary and having better competitive capacity on domestic and international markets. Therefore, businessmen are growing stronger. The number of private enterprises in various types has increased rapidly; entrepreneurship movement is promoted. Therefore, private economy is gradually asserting its position as the main driving force of our country's economic results [7]. In the context of strong development of modern scientific and technological revolution, many private economic enterprises have strongly shifted to agricultures and industries based on digital technology and artificial intelligence. In addition, the trend of economic globalization has created great opportunities for private economic enterprises to boost exports and investment to foreign countries around the world, contributing significantly to increasing foreign currency revenue for Vietnam. Fourthly, private economy plays an important role in creating jobs, reducing poverty and improving people's lives. Private economy creates the most demand of job. Private economy with various types of production and business organizations, types of suitable scale to the developing level of production forces attracts a large number of labor. This is a prominent advantage of private economy in comparison with other economic sectors. According to a report of the Association of Small and Medium Enterprises, currently, our country's private economy attracts about 85% of labor, creating about 1 million jobs for workers every year. Especially, with the development of business of individuals and households in rural areas, private economy has made an important contribution to increasing incomes for rural people and improving their lives. The income level for workers in private enterprises is significantly improved. The average annual income of workers in 2005 was about 25.4 million VND /person, and it increased 1.66 times to 42.3 million VND per person in 2014. In terms of the country’s capital structure, private capital not only ranks the second among the three sectors, but also increased slightly from 22% in 2000 to 38.4% in 2014. Even in difficult economic periods (2008-2009 and 2011-2013), investment of private sector still increased, proving the stability and sustainability of this sector. In addition, The role of Vietnam’s private econony and the developt of private econony in Hanoi 133 private economy also makes an important contribution to the restructuring of labor, creating new jobs for those who are reduced payrolls due to the streamlining of the administrative apparatus and equalization of state enterprises. Private economic enterprises also contribute significantly to the construction of cultural facilities, schools, physical training and sports, transportation, hospitals and other welfare works. Through the above statistics, it also proves the important and indispensable role of private sector in the socialist-oriented market economy in our country today [8]. However, the development of our country's private economy also has drawbacks. Widening the gap between rich and poor, increasing disparities among regions, environmental pollution, low-quality products, and unfair competition are still common. Counterfeiting, smuggling and tax evasion, social issues have not been given adequate attention, national defense and security. This causes instability in the economy and society; potentially increase the risk of deviations from socialism in the development process if the state management is ineffective. The reasons are as follows: Firstly, legal environment for private sector is incomplete; and many regulations are incomplete, unclear, inconsistent, complicated and overlapping. Administrative procedures, procedures to access land, and credit markets are cumbersome, hindering investment opportunities and the development of the private sector. Business costs, transportation costs (Logistics, wages, and insurance) are high. Interest rate is high at 7-9% while this rate in China is 4.3%, in Malaysia is 4.6%, in South Korea is 2-3%. Over 4,000 business requirements (many of them are not in accordance with international practices) pose unsuitable barriers for private sector development. It is possible to quickly cut down more than 50% of these unreasonable conditions. What private businesses need is a transparent, fair and healthy business system that is convenient, practical and effective soon. Second, the tax policy is highly inadequate and there is discrimination between state-owned enterprises and private enterprises. Private enterprises are been treated unfairly. A number of policies and regulations only address state-owned enterprises but not private ones. In addition, the administrative apparatus is not effective; while administrative procedures are not transparent. Many businesses have to pay “informal” costs to finish their work. Therefore, in order to provide strong developing conditions for private economy, it is necessary to focus on solving true equality between business entities, between private economy and state-owned enterprises. It is also necessary to establish a preferential tax scheme for small and medium enterprises [9]. Thirdly, lack of markets, lack of space for production and commerce are the greatest obstacles for businesses. The settlement of the barriers of administrative procedures is mandatory, but in order to develop businesses, the problem of “market”, output, and forming a place to exchange and trade into a link axis will help. In order for private enterprises to be the driving forces of economic development, it is necessary to promote the perfect market institution. Market is an opportunity to access business, land, information, policies, and planning. It is the link between small businesses and large corporations to consume products, and create value chains. Fourthly, the effectiveness of the Party's undertakings, policies and laws of the State to develop private economy is not high. Socio-economic infrastructure has not yet met the requirements of private economic development, especially transport infrastructure and human resources. Lack of capital is always a challenge for private enterprises as they have no collateral to borrow capital or their collateral is not transparent and in dispute; and they lack feasible projects. Therefore, the State needs to create favorable conditions for private economy to access Nguyen Thi Mai 134 bank loans, mobilize capital in the stock market, to issue corporate bonds and use financial services at reasonable costs. Assessing the role of private economy in recent years, Resolution 10-NQ/TW stated: “private economy in our country has been constantly developing, contributing more and more to the cause of innovation and socio-economic development of the country” [10]. 2.3. Practice of private economic development in Hanoi 2.3.1. The imprints of Hanoi private economic development The issuance of Resolution 10-NQ / PR The Fifth Conference, the 12th Central Party Executive Committee, “on developing private economy to become an important driving force of the social-oriented market economy” (on June 3, 2017) is an important step in the Party's awareness of the position of private economy in a new period. Regarding Hanoi - the economic leader of the whole country and the Northern region - the question is how to implement the Resolution effectively and achieve the goals throughout. It can be said that the synchronization, consistency and determination of the leaders of Hanoi have brought remarkable results. On September 1, 2017, the Hanoi Party Committee promulgated Action Program No. 18-CTr / TU to implement the resolutions of the 5th Central Conference, Session 12th “on developing the private economy to become an important driving force of socialist-oriented market economy”. Then, on March 2, 2018, the City People's Committee issued Plan No. 53 / KH-UBND to implement Program 18-CTr / TU in order to create a favorable business and investment environment for private economy. It also supports private sector to innovate with the orientation of sustainable development in both quantity and quality. Particular attention is paid to efficiency, competitiveness and international integration. According to NQ10,” private economy has developed in many aspects... initially, a number of large-scale private economic groups have been established, multidisciplinary activities...” Private economy is not only limited in “Households”, but has developed on a large scale. From this perspective, it can be seen that the achievements of Hanoi's private economy are enormous [11]. The private sector has never been so highly appreciated as it is today. Fully recognizing the Party's policy, Hanoi has actively taken part in, focusing on supporting private enterprises to develop and promote resources among citizens, increasing revenue for the budget. Currently, Hanoi has more than 200,000 private enterprises, creating jobs for more than 50% of the total labor force in the area. In fact, there are a number of fast and sustainable developing units that prove the growth of private enterprises, such as the companies: Tan A Dai Thanh, Minh Tien, Sun House, Li Oa. Especially, the number of newly registered enterprises has been going on with increasing trend over time. In the first quarter of 2018, Hanoi had another 5,010 newly established enterprises, with a total registered capital of VND 48,000 billion, an increase of 8% compared to the same period in 2017. Some specific targets are identified 30 -35% of private enterprises have innovation and creation activities; labor productivity will increase by 4-5% / per year; 400,000 enterprises will operate by 2020. This fact shows that the start-up wave is being maintained, people’s confidence in the business future is being strengthened [12]. The city has proposed open mechanisms, attracting hundreds of trillion dong of strong private economic groups such as the Vingroup, Sungroup, Him Lam, to invest in large projects. The results show that Hanoi has been implementing goals that are very close to the Central Party's policy of NQ10, with creativity and strong solutions. The role of Vietnam’s private econony and the developt of private econony in Hanoi 135 Currently, the business environment has been improved; many entrepreneurs have shown the quality and bravery of modern Vietnamese entrepreneurs who are always active, creative, and proactive in integrating and overcoming difficulties to compete in the market, ensuring stability and development of businesses. It can be affirmed that Hanoi’s private enterprise has increasingly affirmed its core and pioneering role in the construction and development of the capital and the country. The result is thanks to the mechanisms and policies that facilitate the People's Committee of Hanoi as well as all levels, sectors and the efforts of the private business community. In recent years, the city has been closely following the movements of the business community; listening, understanding the situation and getting ready for dialogue, finding solutions to overcome difficulties and meet the development needs of businesses. The competitiveness of Hanoi has continuously increased over recent years and has increased by only one rank (13/63) in the provincial competitiveness rankings published by the Vietnam Chamber of Commerce and Industry (VCCI). Thus, the Capital has firmly stepped into the group of 15 leading localities, further affirming the orientation of supporting and accompanying enterprises, persisting in the objective of improving the quality of investment and business environment. However, in order to develop private economy more strongly, Hanoi needs to continue improving investment environment and clearing bottlenecks [13]. 2.3.2. Limitations Firstly, the problem is that, despite the spectacular progress, private economy in Hanoi has not really been codified into a breakthrough development model. The city also does not have many highly competitive private products, spontaneity and snatching in production and business threatens stability, and violations of laws in the form of “taking risks” do not support the goal of sustainable growth. However, these inadequacies are not unique to Hanoi's private economy but rather prevalent in the country's private economy as a whole. This has been pointed out in NQ10. Second, the more the economy develops and integrates, the more the weaknesses and limitations of private enterprises are revealed. In fact, the competitiveness of businesses is still low (such as capital capacity, management, equipment technology, human resources). Private sector has grown, but the scale is still small and met many limitations on financial and technological capacity (not to mention the problems of domestic manufacturing industries). In addition, there are other intrinsic challenges such as land market, labor, capital and technology underdeveloped. Supporting industries are underdeveloped and importation still heavily depended on one or several markets. Many businesses use outdated producing lines and equipments, often lagging behind 2-3 countries in the region, losing their competitiveness with “foreign” enterprises [14]. Thirdly, the level of management of private enterprises reveals inadequacies because a significant number of business owners operate production and business activities based on their feelings and self-accumulated experience, as a result these businesses are not resilient to serious issues, especially issues related to law or trade disputes... Fourth, Hanoi has few strong brand enterprises that are not competitive in the market; the spontaneity of the private economy still exists and lacks sustainable development goals, and procedural reforms. Although administrative efforts have been made but not really met the requirements, the operation of associations has not promoted the effectiveness of career and the State's supporting policies for businesses through specialized centers are still weak. 2.3.3. Solutions for private sector development in Hanoi To develop private economy to become an important driving force of the market economy, Hanoi has proposed the following solutions: Nguyen Thi Mai 136 Firstly, it is necessary to create a favorable business and investment environment for the development of private economy and support private economy to innovate, modernize technology and develop human resources, improve labour productivity. Private economic development needs to be sustainable in terms of both quantity and quality, especially focusing on improving efficiency, competitiveness and international economic integration; forming a modern business model, integrating into global production networks and regional and global value chains. The city always strives to achieve specific targets; narrowing the gap in technology level, human resource quality and competitiveness of private enterprises. Secondly, the City continues to improve and effectively implement mechanisms and policies, contributing to perfecting the socialist-oriented market economy in our country today. The goal to 2030 is to complete synchronously and effectively operate the socialist-oriented market economy institution in our country. In particular, it will be noted that institutions will be improved to link economic growth with sustainable development, social progress and justice, national defense and security in each development program, project and policy environmental protection and climate change response. It is also important to complete institutions to link regions, to plan, assign, and decentralize management between central and local levels, to improve the efficiency of international economic integration [15]. Third, the City continues to restructure, innovate and improve the efficiency of state-owned enterprises. The goal is to restructure, innovate and improve the efficiency of state-owned enterprises on the basis of modern technology, innovation and management capability according to international standards. This will help mobilize and effectively use social resources, preserve and develop state capital in enterprises, contributing to the economic and social development of the Capital and to the country’s social progress and justice. The goal by 2030 is that most of the City's state-owned enterprises will have a mixed ownership structure, mainly joint-stock enterprises, modern technological and technological level equivalent to other countries in the region. They fully meet international standards on corporate governance; forming a professional, highly qualified and ethical management team [16]. In doing so, the City will continue to promote the restructuring of state enterprises; renovating mechanisms and policies to operate state enterprises according to the market mechanism; improve the operational efficiency of the governance system and improve the capacity and quality of the contingent of State enterprise management officials. 3. Conclusions The above analysis shows that, in theory and practice, private economy has been playing an important driving force for the development of our economy. This is shown in its increasing contribution to GDP and budget revenue, as well as in its business results. However, at present, private economy has not been developed to match its potential. Therefore, in order for the private economy to continue contributing to accelerating the growth rate of the economy, it is necessary to have more innovation on the Party's orientation and policies, the State's legal policies, and the government levels as well as the rise of the entities. Especially Hanoi - one of the major economic centers of the country, the focus on renewing the thinking of developing private economy, renewing the awareness of the private economy in order for Hanoi to make great contributions to Vietnam’s development is extremely important. 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